• October 30, 2014

Boards Can’t Police Charities, So New Oversight Measures Are Urgently Needed

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For years, I’ve been one of many people who have argued that boards of directors are the first and last defense against poor performance, corruption, and a lack of public accountability. But now it’s time to recognize that no matter how much we expect of boards, many if not most of them aren’t up to the job.

The boards at Penn State and the University of Virginia are the most recent prominent examples demonstrating why we can’t trust boards. But plenty of other institutions have proved time and again that they can’t hold their institution’s finances or programs accountable.

So it’s time to rethink the best ways to uphold the integrity of nonprofits. Imposing new measures to force nonprofits and their executives to put the public’s interest first may be a much-needed step.

In some ways, it’s not surprising that boards don’t meet expectations. Experts put so much emphasis on them in part out of desperation.

Because the Internal Revenue Service and state attorneys general have been unable or unwilling to play an effective oversight role, the only other likely source of accountability is the board, which is legally responsible for making sure a nonprofit is serving the public.

The reasons we can’t trust boards are most obvious at colleges and hospitals, which account for a large share of the assets of nonprofit institutions.

Most trustees at public universities and nonprofit hospitals are essentially political appointees, named by governors and state officials because of their political connections, as financial supporters, party members, or close allies to universities and the medical profession. The large majority are not experts in either health or education. Nor are they a cross section of their communities. They are among the wealthiest people in America, and they largely serve as lobbyists to attract more government aid to their institutions.

And at most colleges, public or private, it’s rare for boards to include students, professors, or members of the public in their boards, although some hospital boards include patients, nurses, and people who represent the community.

Also missing from the boards of most national and regional, and even community, groups are the blue-collar workers, teachers, small-business owners or grass-roots community leaders. It may be a cliché to say that we have become much more of a class society, but increasingly the nonprofit boards reflect that truth, and with it the problems of democratic representation and public accountability.

Instead, most trustees of large nonprofits mirror corporate America. That is one reason compensation packages for university and hospital CEO’s and their top administrators have skyrocketed in recent years. So many trustees are used to high corporate salaries and benefits, they think nothing about the taxpayers who are subsidizing high pay or the scores of other ways salary money could be used to serve the public interest.

Because nonprofits feel little pressure to get rid of their elite, ineffective boards, we need to find another approach to ensure high standards of performance and accountability.

Here are some options:

  • Require big nonprofits to appoint an inspector general who would serve a fixed term and make it impossible for nonprofits to remove this person unless they had permissions from courts or the Internal Revenue Service.. All major colleges, hospitals, and other nonprofits with a budget of $5-million could be covered by such a provision. n Create a national, independent ombudsman to monitor charities and foundations and investigate complaints from whistle-blowers and others about possible fiscal, legal, and conflict-of-interest infractions. The ombudsman would have staff members and regional offices, and its work would be paid for with both government and private funds.
  • Require large nonprofits to hire an ethics or compliance officer to alert and advise its board of directors of possible violations of financial practices and program improprieties. The officer would report directly to the board. Mutual funds are required by the Securities and Exchange Commission to have such an officer in place, a precedent that has worked relatively well.
  • Appoint an oversight committee of independent and well-respected citizens to advise and alert boards of large nonprofits about possible infractions of integrity in finances and programs or troubling conflicts of interest.

Until such changes are made, the public has little choice but to demand that boards do a better job. While many small nonprofits have boards that operate responsibly, others do not. They, too, must function more effectively than they do now.

Professional associations that represent and accredit colleges, hospitals, and other nonprofits should raise the bar in the standards they advocate for board membership, stressing the values of independence, integrity, and diversity of race, gender, and class. They should strongly acknowledge that wealth, celebrity, and a corporate background are not the necessary ingredients of effective boards.

Until these criteria become the accepted norm, nonprofits will continue to be plagued by shoddy personnel practices, poor performance, lackluster management, and questionable ethical behavior.

Pablo Eisenberg, a regular Chronicle contributor, is a senior fellow at the Georgetown Public Policy Institute. His e-mail address is pseisenberg@verizon.net.

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